The official headline CPI of 2.4% is artificially low due to a measurement error from the October government shutdown. When corrected, the true year-over-year inflation rate is closer to 2.7-2.8%. This means underlying inflation is still hovering near 3%, significantly above the Federal Reserve's 2% target.

Despite progress on shelter inflation, core services excluding shelter (the "super core") remain sticky. This persistence, linked to wage components, is a primary reason the Federal Reserve will likely pursue a gradual pace of interest rate cuts rather than a more aggressive easing policy.

After accounting for measurement quirks in both CPI and PCE, the podcast's economists converge on an estimate for "true" underlying inflation around 2.7-2.8%. This consensus view suggests that while official measures are noisy, the underlying trend is still meaningfully above the Fed's 2% target.

The gap between Core PCE (3.3%) and Core CPI (2.5%) inflation is driven by how each index weighs shelter and measures financial services. CPI gives more weight to disinflating shelter, while PCE is inflated by a stock market-linked measure for financial services.

The CPI averages costs across 80,000 items, many of which are non-essentials or luxury goods. This method masks the true, higher inflation rate on basic necessities. For example, while the CPI showed a 72% cost increase over two decades, the actual cost of essentials like housing, food, and healthcare rose by a much larger 97%.

Even with a mild Core CPI report, a sharp increase in the Producer Price Index (PPI) for intermediate goods indicates that cost pressures are building in the supply chain. These will likely translate to higher consumer prices in the coming months.

A measure of "market-based core PCE services ex-housing" inflation is accelerating. This niche metric, which strips out imputed prices and volatile sectors, suggests that core economic activity is generating persistent inflation, challenging narratives focused solely on energy shocks or trade wars.

Focusing on falling oil prices as a sign of easing inflation is simplistic. Leading indicators like the sectoral breakdown of payrolls and a core PPI that has jumped from a 3% to a 5% handle in six months suggest a stickier, more concerning inflation outlook for the Federal Reserve.

Official year-over-year CPI figures are misleading due to a government shutdown's data collection issues. By using an annualized three-month moving average to capture current momentum, analysts find that both core and headline inflation are actually running at a 3% rate, suggesting underlying price pressures are stronger than reported.